Colossus of the Internet By making it easy to go online and carpeting America with free-trial disks, America Online has climbed to the top. Here is how it is trying to stay there.

By Reid Kanaley INQUIRER STAFF WRITER

Posted: December 06, 2001

Easy to use and impossible to ignore, America Online, the titan of Internet access, continues to pile on subscribers. The company announced last week that its membership had reached 32 million.

Analysts say that number includes as many as 26.3 million subscribers in the United States - more than three times the membership of its closest rival, Microsoft Corp.'s MSN service, which has seven million U.S. subscribers.

Put another way: Nearly one out of every four U.S. Internet users is an AOL customer.

How did AOL get so big in spite of an industry-high rate of $23.90 per month for unlimited dial-up access?

"It's convenience, stupid," Bert Rosenbloom, e-commerce and marketing professor at Drexel University's LeBow College of Business, said in an echo of the '92 Clinton campaign slogan "It's the economy, stupid."

AOL makes it easy for the casual computer user to get online and find a chat room or send a message.

"For someone who wants it ready-made, it's a very straightforward solution," said Jed Kolko, an analyst at market research firm Forrester Research Inc.

But AOL is frequently maligned as limited, low-brow, suspiciously effortless, the Internet for dummies.

"I saw, someplace, a comparison: AOL is to the Internet as Readers Digest is to the Encyclopedia Britannica," said market consultant Bill Ablondi, head of MarketMaps L.L.C.

Tell that to the millions who love the service.

"They've really resonated with the common person," said Allan Frank, president of technology consulting firm Answerthink Inc., of Conshohocken. "My 88-year-old father uses AOL. . . . My 9-year-old daughter - I can't get her off of it. My wife uses it for e-mail with friends and relatives. . . . If you walk down the halls in a lot of companies, you're going to see these AOL instant-chat windows up" on workers' computer screens.

He said a common feeling was that "everybody is on AOL. I've got to get on it."

AOL, now a subsidiary of media giant AOL Time Warner Inc., hopes to continue that dominance of the online world as consumers migrate to high-speed Internet service via cable modem and digital subscriber lines for computers, and digital set-top cable boxes that can bring the Internet to TV screens.

At present, less than 3 percent of AOL subscribers have such access, according to Ablondi. But so-called broadband Internet access is expected to mean more AOL subscribers online for longer.

"We view it as the ability to have more than one person in the home online at the same time," said Barry Schuler, America Online's chairman and chief executive officer.

Yet some say AOL is already too big.

"If, in the next five years, there isn't an antitrust suit against AOL, [founder] Steve Case will have missed his dream," said Russ Neuman, a professor of media technology at the University of Michigan. He called AOL "the Standard Oil of Dulles, Va."

Neuman's concern is the media empire created by this year's merger of AOL and Time Warner. Such media combinations are designed "to be so big that any new [entertainment] enterprise could not possibly succeed without you," he said.

America Online built an empire on making it easy to get online and buy stuff and sell stuff. So the service has become an attractive venue for all sorts of vendors.

"For us, it's an opportunity to get our brand in front of an awful lot of people," said Jeremy Anwyl, chief executive of the car-information service Edmonds.com.

AOL also has become a part of pop culture, from its often-grating e-mail reminder "You've got mail" to its wildly popular instant-messaging feature, which lets subscribers carry on typed, one-on-one conversations. It has changed the way some people work, and even courtship was affected as people found solace - though often fleeting and anonymous - in online relationships.

"One of the big reasons instant messaging and chat rooms are the killer apps is because it's all about sex, and romance, and people finding other people," Frank said.

AOL officials agreed that sex has had a role in the success of the service. "I wouldn't say it is the killer app. But it is one of the killer apps," Schuler, the company's CEO, said.

The biggest reasons for AOL's success are its widely acknowledged ease of use and Case's early recognition of the mass-market possibilities for an online service.

"We really were the first company that recognized that online was going to become a consumer phenomenon," Schuler said.

The carpet bombing did not hurt, either.

In the mid-1990s, AOL embarked on a massive software distribution that has dumped millions of "free-trial" computer disks on the public.

The first floppy disks came at consumers from all sides: through the mail, in magazines, piled on racks at checkout stands. The practice continues to this day with CD-ROMs. One disk available currently features an eye-catching Harry Potter wrapping.

"It was definitely that carpet bombing that just overwhelmed people [with the notion] that this was the way to go," Ablondi, the market consultant, said.

"We've taken a lot of ribbing over the years," Schuler said. "It was a very simple kind of idea, and the idea was [that] we just want it to be available when people are ready to take the plunge."

The strategy was successful in spite of complaints that the service could not keep up with demand. Soon after the company switched from a per-minute charge to a monthly fee for unlimited access, subscribers overwhelmed its network: Many could not get online because they were greeted by busy signals.

"For a while in the '97, '98 time frame, [AOL] grew so fast that some people called American Online 'America Offline.' But they recovered very, very quickly," said Nirmal Pal, director of Pennsylvania State University's eBusiness Research Center.

Rivals see it differently.

MSN product manager Sarah Lefko said her service was effective in converting AOL members to its own side. "We continue to gain ground on them," she said. ". . . People really want to move up. Some people depict AOL as Internet access with training wheels. When they go to MSN, they can take a step up."

Ablondi said Microsoft posed the most serious challenge to AOL, not least because Microsoft remains in control of the operating system on most PCs, and relentlessly pushes its own services. "Don't forget, Goliath is sitting up in Redmond, Wash., and coming on strong," he said.

But other experts said MSN appeared unlikely to catch AOL anytime soon, in spite of its backing by the world's largest software company.

"I would say there's really no competition there," said Randall Crum, a professor of technology at Southern Vermont College. "There have been a lot of [MSN] promotions with rebates for subscribers, but, as I see it, the Microsoft Network really isn't touching in any way the predominance of AOL."

At 4.8-million-member EarthLink, spokesman Arley Baker lumped his company's two larger rivals together as paternalistic managers of the Internet experience. AOL and MSN are true online services, offering - in addition to Internet access - content and features not available on the Internet at large.

EarthLink is primarily an Internet access provider. "We provide a level of choice that AOL and MSN simply won't, because they have their own agendas," Baker said.

"A lot of people who come to us from AOL basically come because they want a less commercial Internet experience. . . . and they don't want an Internet service experience that is going to manipulate their experience."

Reid Kanaley's e-mail address is reid.kanaley@phillynews.com.

Internet Providers

Leading consumer Internet service providers (U.S. subscribers in millions):

Rank/service Subscribers

1. America Online 26.3

2. MSN 7.0

3. United Online* 6.1

4. EarthLink 4.9

5. @Home 3.7

6. Prodigy 3.5

7. CompuServe 1.8

8. Gateway.net 1.6

9. Road Runner 1.6

10. AT&T WorldNet 1.4

*Formed by the combination of NetZero and Juno Online; includes 1.25 million paying customers.